The more “catch-all” the reference, the better

SindhuSivakumar_DraftingForArbitrationDispute resolution clauses, including arbitration clauses, are often called “midnight clauses”, because parties and their counsel have a tendency to treat these clauses as “boilerplate”, leaving their negotiation and drafting to the absolute last minute. Rarely is attention paid to the precision of the language used. In fact, many clauses  — for instance, “English law – arbitration, if any, London according ICC Rules” — are not even complete sentences. As we will explore in this post, this can sometimes have unintended consequences for the parties.

The language used tends to vary widely in relation to the scope of reference in the arbitration clause. Even the model arbitration clauses provided by the different arbitral institutions are not consistent.

For example, the London Court of International Arbitration (“LCIA”) model clause prefers the language: “Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.”

On the other hand, the International Chamber of Commerce (“ICC”) recommended clause reads: “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

Some arbitration clauses will contain language that is even simpler than this: “All disputes arising under this agreement shall be referred to arbitration.”

Does the language you use matter? Generally speaking, the answer is ‘No’. Most Model Law jurisdictions follow a pro-arbitration policy of giving effect to arbitration clauses unless the language makes it almost impossible to do so, as was the case with the Sulamerica clauses.


That said, there are several cases where the courts have been more semantic in their approach. For example, in one case, the language “arising under” was said to signify a narrower reference than “arising out of” (Heyman v. Darwins Ltd., [1942] AC 356).  In another (Overseas Union Insurance Ltd. v. AA Mutual International Insurance Co. Ltd., [1988] 2 Lloyd’s Rep 63), the words “arising under a contract” were not considered wide enough to include disputes in relation to the validity of the contract itself, such as a misrepresentation claims. In order to include such disputes within the scope of reference, language like “in relation to” or “in connection with” was held to be required.

However, these decisions were much criticised by Lord Hoffman of the House of Lords in Fiona Trust and Holding Corp. v. Privalov, [2008] 1 Lloyd’s Rep. 254 (H.L.). He said:

…in my opinion the distinctions which they [the cases we referred to] make reflect no credit upon English commercial law. It may be a great disappointment to the judges who explained so carefully the effects of the various linguistic nuances if they could learn that the draftsman… regarded the expressions “arising under this charter”…and “arisen out of this charter”… as mutually interchangeable. … the time has come to draw a line under the authorities to date and make a fresh start…

Courts, Lord Hoffman recommended, need to “…give effect to the reasonable commercial expectations of the parties about the questions which they intended to be decided by arbitration….”

This approach will find favour in most modern courts, including in India. See, for example, the decision of the Andhra Pradesh High Court in M/s. Krebs Biochemicals v. Nannapaneni Venkatrao (July 6, 2009).

From a drafting perspective, the lesson one takes away is this — be as wide as possible with the language of the scope of the reference in your arbitration clause; the more “catch-all” it is, the better. That said, the mere fact that you don’t include the words “in connection with” or “in relation to” or “including any question regarding its existence, validity or termination” should not be fatal. In all likelihood, your clause will still be held to cover issues such as the validity of the agreement.

(Sindhu Sivakumar is a member of the faculty on


Non-mandatory arbitration clauses are also pathological

SindhuSivakumar_DraftingForArbitrationA major reason pathological clauses are so common is that contractual parties and their lawyers, against better judgement, tend to treat arbitration clauses as mere ‘boiler plate’ or ‘midnight’ clauses. Little attention is paid to these clauses when closing the deal and signing the contract.

This leads to all kinds of drafting disasters such as the inconsistent clause we saw in the previous post, which contained an agreement to arbitrate and the designation of a national court to resolve contractual disputes.

Optional or non-mandatory arbitration clauses are another type of pathological clauses. See the following examples.

Drafting-and-Reviewing-Comm-Contracts-Ad-2 “In the case of dispute (contestation), the parties undertake to submit to arbitration but in the case of litigation the Tribunal de la Seine shall have exclusive jurisdiction”

“English law – arbitration, if any, London according ICC Rules” 

“[t]he parties may refer any dispute to arbitration”

The language in all these clauses leads to uncertainty about the parties’ intention and agreement. Did they or did they not intend to submit their disputes to arbitration?

The agreement to arbitrate is the cornerstone of arbitration. An arbitration clause has to — clearly and unequivocally — record the consent of the parties to submit to arbitration. This is essential to conduct any process of dispute resolution outside the national court systems.

Not all the clauses listed above survived when challenged in the courts (which includes the English, Canadian, and Hong Kong courts). Even a pro-arbitration jurisdiction cannot always give effect to arbitration clauses that contain no clear agreement to arbitrate.

Moral of the story? Don’t draft a non-mandatory arbitration clause if your clients have indicated their preference to arbitrate. Make it very clear when drafting your arbitration clause that disputes arising out of or in connection with the underlying contract will be resolved by arbitration. Clearly oust the jurisdiction of the courts.

(Sindhu Sivakumar is a member of the faculty on


Avoid pathological arbitration clauses. Be consistent.

Arbitration clauses have four essential purposes. They have to:

  1. produce mandatory consequences for the parties;
  2. exclude the intervention of state courts in the settlement of disputes likely to arise between the parties,
  3. give the arbitrators the powers necessary to resolve the disputes; and
  4. permit a procedure which leads, under the best conditions of efficiency and rapidity, to the rendering of an enforceable award.

SindhuSivakumar_DraftingForArbitrationA former Secretary General of the ICC International Court of Arbitration, Frederic Eisemann, had coined the term clauses pathologiques in 1974. A “pathological arbitration clause” fails to achieve any of the purposes above.

So what’s wrong with these clauses? Apart from being incoherent, confusing to interpret, and often plain baffling, these clauses are likely to end up in court, very much contrary to the original intention of the parties to avoid a long and drawn out public battle in the courts and have a speedy, efficient, and private resolution of their disputes.

Remember, being “pathological” does not always mean the clause is unenforceable. Where they can, courts try and make sense of, and give meaning to these clauses and enforce them. All these clauses however, have caused much confusion and delay, and often defeated the purposes of efficiency, speed, and privacy.

So how do we ensure we don’t have a pathological clause on our hands?

Rule Number 1 – Don’t be inconsistent. Look at these two clauses. Both are found in the same contract – an insurance policy).

“7. Law and Jurisdiction

It is agreed that this Policy will be governed exclusively by the laws of Brazil. Any disputes arising under, out of or in connection with this Policy shall be subject to the exclusive jurisdiction of the courts of Brazil.

12. Arbitration

In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation as above, such dispute shall then be referred to arbitration under ARIAS Arbitration Rules….

The seat of the arbitration shall be London, England.”

How do you read these two clauses together? One clause makes disputes arising under the contract subject to court litigation in Brazil. Another wants disputes to be referred to arbitration under the ARIAS Arbitration Rules. No other clause in the contract gave any indication as to which should take precedence.

You can’t read them together. They are blatantly contradictory. Justice Cooke agreed.

Drafting-and-Reviewing-Comm-Contracts-Ad-2When faced with these two clauses in the High Court, the only reason he ultimately upheld the arbitration clause (overriding the exclusive jurisdiction language in clause 7) is because of the strong English policy in favour of arbitration. He adopted a very liberal approach to the words chosen by the parties in their arbitration clause and held that the parties, as rational businessmen, must have intended to have arbitration as the sole dispute resolution mechanism for all disputes arising under their policies.

However, it is unlikely that any policy in favour of arbitration is likely to save such pathological clauses in other jurisdictions. It would in all likelihood be held to be void for uncertainty.

So don’t draft inconsistent, pathological arbitration clauses and hope for the courts to save you. If your clients want arbitration, draft watertight and consistent arbitration and governing law clauses and ensure they never have to go to court on account of your bad drafting.

(Sindhu Sivakumar is a member of the faculty on